The IMF has released a new report that lays out general principles that should guide governments in managing public interventions in the banking system.
Full paper here.
Summary here.
Category: Banking Crisis
Since the Morgan Kelly thread is spiralling towards a Night Before the Big Event discussion, I thought I’d give our readers a dedicated pre-NAMA thread to hang out in.
Brian Lucey has posted his prediction:
My prediction for tomorrow: 55b regular (blue) NAMA bonds, max 5b subordinated (purple) NAMA-bonds to purchase low 80s of book value; we may get to know the bond issue more clearly – expect to hear that the bonds are being issued on 12-18m rollover basis, and that subbies are very longdated.
I’m not sure I can disagree too much with that but I do hope it’s wrong both on total payment (too high) and the amount of sub bonds issued (too low). Part of the point of the lobbying effort that I and others have put in has been to get the government to avoid such an outcome, so I’d be disappointed if that came to pass.
A couple of other bits of pre-match punditry:
1. Don’t focus on the average haircut. That will include the haircut on Anglo loans which is one hand of government paying another, so it has no implications for the taxpayer. Focus instead on the haircuts for BOI and (in particular) AIB.
2. Let’s hope we can get some proper evidence on the original value of the collateral put up for the loans being acquired—the commonly-cited though theoretical €120 billion figure for the original collateral value underlying the equally theoretical €90 billion in loans. Without convincing evidence for this figure, claims that we should add 25 percent to get at the discount being applied to original value of the collateral should be interpreted with a huge dollop of salt. Ideally, I would also like to see evidence provided on the amount of rolled-up interest in the loans being purchased as well as any reduction in net equity due to cross-collaterisation. Claims that this information is “commercially sensitive” should be countered by proposals that detailed, convincing, information could be provided to the main opposition spokesmen.
3. Full detailed information about both types of bonds should be revealed including the exact circumstances under which the NAMA subordinated debt will not pay off and the maturity and coupon formula for the regular bonds.
4. Look for full details of planned recapitalisations to be announced. We should know by tomorrow what rates of regulatory capital the government intends for the banks after the NAMA transfer.
Anything else?
The Irish Times has the details of the Green Party preferendum.
1) Nama with strong Green Party policy conditions and only current market values being paid for transferred loans: 23 per cent;
2) The “Swedish solution” with each institution forced to write down its loan book to current market values and the possibility of separate asset management companies for individual banks: 20-21 per cent;
3) A free-market, laissez-faire approach, with banks left to fend for themselves: 14-15 per cent;
4) The Nama legislation in its present form: 13 per cent;
5) Partial nationalisation, with a “good bank” to assist small and medium enterprises: 12-13 per cent;
6) Full nationalisation: 12 per cent.
One can only imagine what subsequent ownership structure was envisaged by the Green Party faithful who voted for (1) and (2).
Rumour has it, the menu for dinner in Athlone was:
1) Chicken
2) Cod
3) Haddock
4) Sea Bass
5) Salmon
6) Fish
Hardly anybody picked option 6.
With only a couple of days to go before the key details are announced, it seems to me that confusion over the role of the ECB has now become a central feature of most journalistic discussions of NAMA (I’ll pass on speculating as to why this is the case). Take this paragraph from an op-ed on the Greens in today’s Irish Times by Deaglan de Breadun:
A key point was that the European Central Bank is prepared to provide €60 billion on favourable terms to assist the Nama process. Moreover, the more pragmatic element in the party is reluctant to look this particular gift-horse in the mouth, especially since it will not be coming from the taxpayer’s pocket.
Is the fact that NAMA is being paid for by the issuance of Irish government bonds really so hard to understand? Even the role that the ECB is playing in the process—which I discussed here—isn’t really so complicated.
Moreover, doesn’t anyone find it strange that the same people who worry night and day about the government budget deficit—the issuance of €400 million in IOUs per week—and tell us that large cuts are necessary because of it, then regularly tell us that we don’t need to worry about the costs of NAMA because it just involves printing IOUs?
One might as well say that deficit financing spending is a fantastic idea (a gift-horse from the bond market!) because it doesn’t come from the taxpayer’s pocket.
I have spent a lot of time arguing that, among the set of options available to us to put the Irish banking system back on track, the current NAMA proposals represent an approach that is unacceptably costly to the taxpayer. The sense I get back from those who defend these proposals is that, yes this may be risky for the taxpayer but that the risk is worth it because NAMA is going to “get credit flowing in the economy again.”
Forgetting for a minute the questions of cost or fairness, I would argue that there is little reason to think that the current NAMA proposals will achieve this goal over the next few years.